Saudis raise Asia, US oil prices after shock output cut

Dubai

SAUDI Arabia raised pricing for oil customers in Asia and the US after its shock move this week to cut output sent crude prices climbing.

A day after its unilateral decision during a meeting of the Organization of the Petroleum Exporting Countries and its allies (Opec+) to slash oil production, the kingdom opted to increase prices for all grades shipped to the two regions in February.

State producer Saudi Aramco on Wednesday raised its flagship Arab Light oil to Asia, its biggest market, to US$1 above the benchmark used by the company. That is the highest level since August.

The increase of 70 US cents from January's shipments was more than the market had expected ahead of the Opec+ gathering. The median estimate was for a hike of 40 US cents, showed a Bloomberg survey of five traders in late December. All US grades were raised by 20 US cents.

Aramco lowered prices for the north-west European and Mediterranean regions, where energy demand has been hit by new coronavirus lockdowns over the past month.

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It is the second straight monthly increase for oil that the world's biggest exporter sells to its main market. Some Asian nations have experienced higher energy demand in recent weeks, thanks in part to a cold winter.

The move coincides with a historic drop in Saudi oil shipments to the US. For the first time in 35 years, America did not import any of the kingdom's crude last week. Cutting shipments to the US is the quickest way for Saudi Arabia to signal to the wider market that it is tightening supply, because the US reports import and oil storage data weekly. Other big energy consumers, such as China, publish such information less frequently.

The Saudis' reduction of output by one million barrels per day (bpd) next month and in March is set to further restrict the flow of barrels to Asia and has already spurred higher crude prices. Brent crude has gained more than 7 per cent in the past three days and is near US$55 a barrel, its highest level since February.

Even with the output cuts, the kingdom will pump about 8.12 million bpd in February and March - more than twice the level of Iraq, the Opec's second-largest producer.

The Saudi production curbs - which come on top of those Riyadh was already making as part of Opec+'s attempt to bolster prices - will end in April, Energy Minister Prince Abdulaziz bin Salman told Bloomberg Television on Wednesday.

"We gave the oil industry a wonderful present and a wonderful surprise," he said. "We're extending support and help to the industry."

Opec+ were split at their meeting. Moscow proposed the group move ahead with plans to add 500,000 barrels a day of supply next month, while Riyadh and most other members were more cautious, pointing to the rising number of coronavirus infections globally.

Ultimately, Russia and Kazakhstan were allowed small increases in production, while all others, aside from Saudi Arabia, will hold theirs steady.

The development and rollout of vaccines to counter the virus have helped crude prices rally almost 40 per cent over the past two months, sparking Russia's desire for higher output.

The Saudis and other Gulf producers cited persistent concerns demand could weaken in the short term because of the lockdowns.

Saudi Arabia's pricing decisions usually set the tone for other Middle Eastern suppliers, including Iraq and the United Arab Emirates. They may release their own prices for February in the coming days. BLOOMBERG